Unpaid leave and sabbaticals

The guidance is non-statutory and is not binding on business. However, businesses should be aware that there might be reputational consequences if they do not follow the guidance; we have already seen in the context of taking advantage of furlough funding that not being in breach of the law is no protection against negative publicity. Further to the extent a contract expressly requires parties to act reasonably, it could be expected that this guidance is one of the factors a court would consider in determining what is reasonable.

You will be eligible if you are a self-employed individual or a member of a partnership and you:

• have trading profits of up to £50,000
• earn the majority of your income from self-employment
• have submitted a Tax Return for 2019
• have traded in the tax year 2019/20
• are trading when you apply for a grant, or would be except for Covid-19
• intend to continue to trade in the tax year 2020/2021
• have lost trading/partnership profits due to Covid-19

Commercial leases generally prevent a tenant from withholding payments of rent. If a tenant stops paying rent there will be a breach of the tenant’s covenant to pay rent which, strictly speaking, will entitle the landlord to forfeit the lease and/or seek to recover the arrears in the courts. 

However, on 23 March 2020, the Ministry of Housing, Communities and Local Government announced that all commercial tenants in England, Wales and Northern Ireland missing rent payments are to benefit from a government ban on forfeiture of their lease. This change, which will prevent landlords from terminating leases and evicting commercial tenants, is included in the Coronavirus Bill. It will come into force very shortly (once the Coronavirus Bill receives Royal Assent, which is expected to be in a matter of days) and will last until 30 June 2020, with an option for the government to extend this deadline.

It is anticipated that many commercial tenants will take advantage of the reprieve and withhold their rent. Importantly note the rules will apply not only to principal rent but to “any sum a tenant is required to pay”, leaving the burden of supplying services and insuring the premises on landlords.

It is also important to note however that the protection offered by the government is from the threat of forfeiture should tenants withhold rental payments. The liability to pay the rent however remains an interest on unpaid rents will accrue. Furthermore, remedies other than forfeiture may be pursued by the landlord e.g. service of a statutory demand before insolvency or ordinary litigation proceedings for arrears etc.. Tenants then ideally should look to reschedule or suspend rental payment through discussions with their landlord.       

The advantage of this being you might be able to negotiate a sensible and manageable repayment program in respect of the suspended rent, free of the threat of litigation.

Yes. The updated government guidance has confirmed that office holders (including company directors), salaried members of Limited Liability Partnerships (LLPs) individuals working under umbrella companies (including agency workers) and individuals who are classified as ‘workers’ rather than employees can be furloughed but only to the extent that they are paid via PAYE. Therefore director’s fees can be claimed (subject to the cap) but dividends are excluded, as are bonuses and commission payments.

Those who are paid annual are now eligible to make a claim, subject to meeting the remaining requirements. This includes being notified to HMRC on an RTI submission on or before 19 March 2020 which relates to a payment of earnings in the 19/20 tax year.

The decision to furlough a director or office holder should be adopted as a formal decision of the company or LLP which should be minuted and notified in writing.

Company directors can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company while furloughed and they cannot carry out work that would generate revenue or perform services to or on behalf of their company. This also applies to salaried individuals who are directors of their own personal service company (PSC).

Companies House guidance on the impact of coronavirus on their services can be found at: https://www.gov.uk/guidance/coronavirus-guidance-for-companies-house-customers-employees-and-suppliers

This flexibility offered by Companies House could be a useful short-term help to businesses that are struggling to deal with the impact of the Covid-19 outbreak, but be sure to take action in advance of your filing deadline.